IIROC’s enforcement authority gets a stronger legal backbone

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Jul 20, 2018

The Investment Industry Regulatory Organization of Canada (IIROC) recently released its 2017 Enforcement Report. Chief among this past year’s touted achievements is that IIROC’s enforcement powers were expanded by legislative authority in six provinces:

  • In January 2017, Prince Edward Island Office of the Superintendent of Securities gave IIROC the authority to directly register disciplinary decisions with the Supreme Court of P.E.I., as well as the authority to collect evidence at the disciplinary hearing stage;
  • In May 2017, Ontario gave IIROC the ability to collect disciplinary fines directly through the courts;
  • In June 2017, Alberta provided IIROC with statutory protection against lawsuits for acting in good faith and with the authority to collect evidence during its investigations, both of which resulted in IIROC having a full enforcement toolkit in this province;
  • In March 2018, Manitoba introduced legislation (Bill 23) to give IIROC protection from malicious lawsuits as well as the ability to collect disciplinary fines through the courts and launch appeals to the Manitoba Securities Commission. On June 4, 2018, Bill 23 received Royal Assent; and
  • In April 2018, British Columbia gave IIROC the ability to collect disciplinary fines through the courts an
  • In June 2018, the Quebec Government passed legislation clarifying the scope of IIROC’s statutory immunity and providing IIROC with improved legal authority to collect evidence (p 2, 2017 Enforcement Report; IIROC News Release, June 14, 2018).

It will be interesting to see whether and how these statutory initiatives, long pursued by IIROC, will impact the self-regulatory organization’s enforcement approach. Adding statutory authority will no doubt raise interesting questions about whether IIROC continues to be seen to be merely enforcing contractually established rules for its members, or whether it is becoming a state agent, entitling those subjected to its disciplinary and other enforcement proceedings to enhanced protections and procedural safeguards.

IIROC’s ongoing efforts, including those directed at expanding its arsenal of enforcement tools through collaboration with provincial governments, may already be bearing fruit. Compared to 2016, in 2017, the fines collected by IIROC grew from $2.7 million to $3.4 million. In jurisdictions where IIROC had legislative authority to collect fines through the court system, IIROC also observed an “overall change in behaviour with sanctioned advisors taking their responsibilities to IIROC more seriously.”

It is also evident that firms and senior compliance personnel felt IIROC’s reinforced regulatory “teeth” this past year. As indicated in the 2017 Enforcement Report, the number of prosecutions involving firm supervisory failings increased by 25% in 2017, with the total fines against firms doubling. Meanwhile, prosecutions against senior personnel represented 30% of IIROC’s total prosecutions as well as 40% of the cases reviewed.

While IIROC has emphasized its improvement in collection efforts over the past year, during this past decade IIROC has amassed $32 million in uncollected fines. With 2018 being IIROC’s 10th anniversary, it has set its sights on enhanced enforcement to ensure it fares better the next decade. Accordingly, IIROC’s strategic focus for enforcement in the upcoming year is to:

  • increase fine collection through expanded legal authority;
  • develop alternative forms of disciplinary action; and
  • strengthen the process of compliance referrals to enforcement (p. 15, 2017 Enforcement Report).

We have been writing about IIROC’s investor protection efforts since 2015 (see here, here and here) and will continue to track IIROC’s progress in working towards each of its 2018 enforcement initiatives.

As a final note, we observed that IIROC’s enforcement efforts appear to have been bolstered by its internal efficiencies, as evidenced by the Canadian Securities Administrators’ (CSA) IIROC Oversight Review Report (Report). The Report is an annual risk-based assessment of IIROC’s regulatory processes. For this year’s Report, CSA staff reviewed key regulatory processes in the following functional areas: financial and operations compliance, corporate governance, risk management and financial operations. Aside from two minor findings in the area of corporate governance, CSA staff were satisfied that IIROC’s regulatory processes were effective, efficient, and applied consistently and fairly, and that IIROC was compliant with the terms and conditions of the orders recognizing it as a self-regulatory organization.

Taken together, the 2017 Enforcement Report and the Oversight Review Report serve as a reminder to any organization of the meaningful and impactful benefits of ongoing and appropriate enterprise risk management.